Praveen Ranjan AGM RBI, Ranchi - Department of Industry ...

Praveen Ranjan 

AGM 

RBI, Ranchi 

Reserve bank of India, Ranchi

Structure of presentation 

• Restructuring and asset classification 

• Rehabilitation of sick units 


Asset classification ‐ MSME 

Standard assets 

Micro and Small – 0.25% of the loan amount. 

Medium – 0.40% . 

SubStandard Assets 

Secured – 15% 

Unsecured – 25% 

Doubtful – 100% for unsecured portion. 25‐40 for 

secured portion 


Restructuring guidelines 

• On August 27, 2008, comprehensive guidelines on 

Restructuring issued. Current guidelines on 

restructuring have been consolidated vide Master 

Circular – Income recognition and asset classification 

norms – July 1, 2012. 

• The current circular harmonizes prudential norms 

across all categories of restructuring i.e corporate, 

retail, SME, infrastructure. 


General Principles 

(a) Banks may restructure Accounts classified as 

Standard/Sub‐standard/Doubtful. Loss Assets 

cannot be restructured. 

(b) restructuring/rescheduling retrospectively is not 

allowed. 

(c) Asset classification status on date of approval, 

relevant for deciding a.c. after restructuring 

(d) Formal consent/application of debtor 


(e) Viability should be established 

(f) Borrowers indulging in frauds/malfeasance ineligible 

for restructuring 

(g) BIFR cases ineligible unless BIFR approves 


Asset Classification upon 

restructuring 

(a) Accounts classified ‘Standard’ be classified ‘Sub‐ 

Standard’ upon restructuring 

(b) NPA, upon restructuring would slip into lower 

category. with reference to pre‐restructuring 

repayment schedule 

(c) All restructured accounts classified NPA eligible for 

upgradation to standard after ‘satisfactory 

performance’ during ‘specified period’. period. If no S.P. a.c. 

by pre‐restructuring repayment schedule. 


(d) Any additional finance can be treated as standard 

upto end of specified period. 


Provisioning Norms 

(a) Restructured Standard advances –2% for first 

two years 

(b) Restructured t NPA –as per normal provisioning ii i 

norms 

(c) Restructured NPA after upgradation to standard 

–2% in the first year. 

(d) Provision for erosion in fair value of advance 


Special Asset Classification Status 

• package implemented within 90 days of approval – 

• Upon restructuring, standard will not be downgraded to 

SS S.S. and S.S./Doubtful S will not deteriorate, if SP is seen 

during specified period, provided 

• Dues to bank are fully secured by tangible security, 

except SSI borrowers with o/s upto Rs.25 lakhs and 

infrastructure 

• Unit, if infrastructure, becomes viable in ten years and 

others in seven years 


• Repayment period, including moratorium not to 

exceed 15 years in case of infrastructure and 10 years 

in case of others. 

• Promoters sacrifice/additional funds should be 

minimum 15% of banks sacrifice – 50% upfront and 

15% within ihi a period of one year. 

• Personal guarantee by promoter except when unit 

faces external factors 

• Restructuring is not a repeat Restructuring. 


Restructuring of SME under Consortium 

financing‐Multiple Banking 

• Simple Mechanism 

• Board approved policy for restructuring of SMEs 

• Bank with the largest exposure to work out 

restructuring package along with the second largest 

bank 

• Implementation within 90 days of receipt of requests. 

• To keep the board informed 


Rehabilitation of Sick Units 

• Restructuring if properly implemented would prevent 

a unit from turning sick. 

• A unit is considered d as sick ik when any of the borrowal 

accounts of the unit remains substandard for more 

than 6 months, or 

• there is erosion in the net worth due to accumulated 

cash losses to the extent of 50% of its net worth during 

the previous accounting year and the unit has been in 

commercial production for at least two years. 


• Comprehensive Guidelines for rehabilitation of sick 

units – January 16, 2002 

• Warning signals for sickness ik – 

a) Continuous irregularities in cash credit/overdraft 

accounts such as inability to maintain stipulated 

margin on continuous basis or drawings frequently 

exceeding sanctioned limits, periodical interest 

remaining unrealized; 

b) Outstanding balance in cash credit account 

remaining i continuously at the maximum; 


c) Failure to make timely payment of installments of 

principal and interest on term loans; 

d) Complaints from suppliers of raw materials, il water, 

power, etc. about non‐ payment of bills; 

e) Non‐submission or undue delay in submission or 

submission of incorrect stock statements and other 

control statements; 

f) Attempts to divert sale proceeds through accounts 

with other banks; 


g) Downward trend in credit summations; 

h) Frequent return of cheques or bills; 

i) Steep decline in production figures; 

j) Downward trends in sales and fall in profits; 

k) Rising level of inventories, which may include large 

proportion of slow or non‐moving items; 

l) Delay in meeting commitments t towards payment of 

installments due, crystallized liabilities under LC/BGs, 

etc. 


Liberalisation of rehabilitation 

of SMEs 

• January 16, 2002 guidelines withdrawn vide September 

12, 2011 circular 

• Banks given complete freedom to formulate policy 

regarding rehabilitation of sick units 

• Rehabilitation Policy to be approved by Board of the 

bank 

• Freedom given so as to increase the support provided 

to SME sector 


Discretionary concessions 

• Waiver of interest dues on cash credit and term loans 

• Reduction of interest – below base rate allowed 

• Funding of interest due to bank for some time 

• Concessional interest on working capital 

• Contingency loan assistance 

• Funding for start up expenses and margin for working 

capital 

• 50% of promoters contribution to be brought upfront 

and rest within one year 


Important Points 

• Rehabilitation/restructuring not a matter of right 

• Banks to exercise their commercial judgement 

• Banks to consider viabilty of units 

• Sacrifices to be decided by banks as per their 

commercial il judgement. 

• If not found viable –exit routes through SARFAESI 


Data on Sick units ‐ Major Banks 

Jharkhand (September 2011) 

Bank Group 

No. of Units 

Amount Outstanding 

( In Rs. lakhs) 

SBI 623 906.32 

BOI 0 0 

PNB 316 1884 

Canara Bank 1 426 

JGB 148 159 

VGB 0 0 

Total of all banks 1115 4124.08 


Thank You

Praveen Ranjan AGM RBI, Ranchi - Department of Industry ...

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